The dollar and the carry-to-value rotation. It is (probably) premature to mention recession, but that US exceptionalism is moderating should be undisputed. Further moderation would be USD bearish and push us towards final stages of carry-to- value rotation. Cheap low-yielders are thus primed to benefit and equity-hedging flows should become FX-relevant. The u-turn in German fiscal policy is a game-changer and opens the prospect of Europe catching up to US growth for the first time in years. New EUR/USD forecast is 1.14-16. The near-term path is noisy with key tariff dates and German fiscal in flux, but focus on medium-term themes of US moderation and European recovery.

Trade Recommendations: Short DXY. Sold USD vs. EUR, SEK intra-week. Sell USD vs. AUD, NOK. Stay short EUR/ SEK in options; sell EUR vs. NOK and SEK outright. Re-sell CHF/JPY after hitting take-profit stop. Stay long JPY vs USD, NZD , EUR. On EM FX, we stay marketweight. Reduced UW in Asia, increased OW in EMEA EM and we stay UW Latam and long frontier carry. Top bearish picks are THB, CNY, SGD, CLP, VND. Top bullish picks are MXN, INR, CE3,TRY, ILS, EGP, NGN, KZT

03/03/2025—Moderating US exceptionalism is pushing for USD weakness, but tariffs are pushing the other way. FX that benefits from tariff uncertainty and possible US moderation are defensive low-yielders like JPY; hence, continued preference for yen longs on crosses. Additional China tariffs are a new risk. EUR has cross-currents to tariffs from a potential cease-fire and fiscal spending; sentiment and terms of trade impact from a cease-fire are likely more relevant than fiscal. Cautiously bearish EUR on tariffs; preference for cheap regional recovery candidates (SEK). China NPC will be closely watched but may not offer much direction for CNY FX.

Trade Recommendations:Tactically neutralize USD longs. Take profits on short EUR/USD; rotate to EUR/JPY put spread. Increase long-JPY (vs USD & NZD). Hold CAD/JPY put. Take profits on outright short in EUR/SEK, Stay short CHF/JPY in cash. On EM FX, we stay MW. Adding UW in Latam to UW in Asia (vs. OW in EMEA EM) and taking profits on some bullish trades (ZAR, HUF). Top bearish picks are THB, CNY, MYR, CLP, CZK; bullish picks MXN, TRY, ILS, KZT (FXMW, 28th).

02/21/2025—The recent sell-off in the USD is a part of the unexpected, pro-cyclical turn in markets, which owes as much to tariff fatigue as to falling US real yields. The latter owes to unresponsive Fed policy in the face of a sharp tariff-induced surge in front-end inflation expectations. An imminent reversal of this dynamic is difficult to foresee, but the substantially advanced stage of the USD de-risking cycle should slow the pace of any further weakness. The intensity of recent JPY strength has been surprising, but further follow-through lower in USD/JPY will run into fulsome BoJ pricing, extended speculative length, domestic outflows, and policymaker discomfort with the JGB sell-off. Only limited spillover from the sharp rally in Chinese equities onto CNY FX.

Trade Recommendations: Modestly long USD and short EUR (vs USD, SEK) but in reduced size and more optionalized. Take profit on EUR/JPY put spread with spot near lower strike. Hold short CHF/JPY on rates convergence but take profit on short NZD/JPY leg of JPY basket on valuations and after local catalysts. Take profit on EUR/NOK put spread and short GBP/SEK leg of SEK basket as UK data resilient. (FXMW, Feb 21st).

02/08/2025—Near-term USD bullish but pondering medium-term risks. Tariffs came but were mostly short-lived; more are in the pipeline which will keep a floor under the dollar. The broad dollar prices in ~70% odds of a 10% tariff rate. Stay bullish USD, bearish EUR and CNH but caveat is that price action will be “buy the rumour, sell the fact” variety. We are open-minded to the possibility that tariffs could no longer provide the explosive 1Q USD strength given back and forth on delivery. Core themes ex-tariffs are: Japanification of the euro, RV (DM: bearish GBP, NZD vs. JPY, Scandis; EM: underweight Asia FX, overweight EMEA, neutral Latam majors). JPY longs on policy convergence remains a theme but on the crosses. We ponder longer-run drivers of USD bearishness: Russia/ Ukraine cease-fire, US growth catching down to RoW and unconventional US policy are all on the radar. Trade Recommendations:EUR/USD 1Q 0.99, USD/JPY 4Q 148, AUD/USD 2Q 0.65 (all unchanged). USD/CAD 2Q 1.45 (1.43). EUR/CHF 1Q 0.90 (0.89). EUR/SEK 2Q 11.30 (11.60). On EM FX, USD/CNY 2Q 7.50. USD/INR 2Q 87.90 (87.00). USD/ZAR 1Q 18.75 (19.00). USD/BRL 2Q 6.00. USD/MXN 2Q 20.60.